What is a "cash value" in a permanent life insurance policy?

In a permanent life insurance policy, the "cash value" refers to the savings component that accumulates over time as you pay premiums. Unlike term life insurance, which provides coverage for a specified term without an investment component, permanent life insurance policies (such as whole life or universal life) have a cash value that grows based on a portion of the premiums paid and potentially accumulates interest.

This cash value aspect is significant because it allows the policyholder to have accessing funds during their lifetime. The cash value can be borrowed against, meaning the policyholder can take out a loan using the accumulated cash value as collateral, or it can be withdrawn, allowing the policyholder to extract some of the funds if necessary. It's important to remember that borrowing against cash value can reduce the death benefit and may incur interest charges if not repaid.

The other options describe elements of life insurance policies but do not accurately define cash value. The premium paid is for coverage, the total benefits paid to beneficiaries refer to the death benefit, and the total face value indicates the amount of coverage provided by the policy. None of these options capture the unique investment and savings feature that the cash value represents within a permanent life insurance policy.